Home Shopping Network 2008 Annual Report Download - page 52

HSN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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Cornerstone reporting unit and were due, in part, to the deterioration in the macroeconomic environment for
retailers, particularly in the home and apparel categories (which are Cornerstone's primary markets), the negative
impact of this environment on Cornerstone's performance and the related reduction in market valuations for retailers.
HSNi conducted its annual test for impairment as of October 1, 2008 during the fourth quarter of 2008.
During the fourth quarter of 2008, the recession deepened and consumers were spending less. As a result of the
deepening recession, deteriorating consumer confidence and uncertainties with respect to the breadth, depth and
duration of the economic downturn and its potential effects on HSNi’s business, HSNi revised its projections used to
derive its future cash flows. Further, HSNi employed and considered the input of specialists to aid in valuing assets
and liabilities of its reporting units (including identified definite and indefinite lived intangible assets) and in
determining appropriate discount rates and terminal growth rates to calculate HSNi’s discounted cash flows. The
outcome of the annual impairment testing indicated the existence of impairment associated with both the HSN and
Cornerstone reporting units.
Also, during the fourth quarter of 2008, HSNi determined that the downward trend of its stock price and the
overall negative environment regarding the expected performance of the retail sector were triggering events as
defined in SFAS 142. Accordingly, HSNi updated its impairment assessment as of December 31, 2008. As a part
of this assessment, HSNi updated its valuation as of December 31, 2008, and adjusted the rates used to discount its
cash flows to support a valuation that was indicative of the 10 day average market value of HSNi’s stock plus an
estimated control premium based upon observable transactions of comparable companies.
As a result of the analyses, the goodwill impairment charges recorded in the fourth quarter of 2008 at the
HSN and Cornerstone reporting units were $2.4 billion and $271.1 million, respectively. The intangible asset
impairment charges in the fourth quarter of 2008 at the HSN and Cornerstone segments were $50.0 million and
$174.0 million, respectively.
Charges related to the impairment of goodwill and intangible assets are included in asset impairments in the
accompanying consolidated statements of operations.
As a result of these impairment charges, HSNi no longer has goodwill recorded, and its intangible assets
are recorded at their estimated fair values as of December 31, 2008. An increase in the discount rates or additional
declines in the future estimated cash flows or the trading value of our common stock could result in additional
material intangible asset impairment charges.
The balance of goodwill and intangible assets, net, is as follows (in thousands):
2008 2007
$ -
$ 2,884,389
260,248
554,848
1,499
16,814
$ 261,747 $ 3,456,051
Goodwill
Intangible assets with indefinite lives
December 31,
Intangible assets with definite lives, net
Total goodwill and intangible assets, net
Intangible assets with indefinite lives relate principally to trade names and trademarks acquired in various
acquisitions. When definite-lived intangible assets are sold or expire, the cost of the asset and the related
accumulated amortization are eliminated and any gain or loss is recognized at such time. For the year ended
December 31, 2008, HSNi wrote off $259.0 million of fully amortized definite-lived intangible assets.
At December 31, 2008, intangible assets with definite lives relate to the following (in thousands):